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Your future is now

In the past years, we’ve been hearing a lot about how the pensions system is not sustainable and how a reform is urgently needed. Throw in some terminology such as first and second pillar pensions, and the average financial literacy levels are stretched to the limit.

“Pensions can be explained in a fairly simple way,” Stuart Fairbairn, chief officer business development, MSV Life, says. “On one hand, you have the state pension, which offers you a level of dignity. Then, if you want to maintain your current lifestyle even after you retire, you can invest in a personal pension. This can be seen as a top-up on your state pension.”

MSV Life, Malta’s largest life insurance company jointly owned by Mapfre Middlesea and Bank of Valletta, has just launched two personal pension plans, becoming the first provider of such products in Malta.

“Since the launch of these personal pension plans on November 13, the interest and take-up has been very encouraging,” Fairbairn says.

This interest can be seen against the backdrop of an economy which is performing well.

“The financial services sector is achieving strong growth, spilling over into other sectors such as real estate and hospitality,” Fairbairn says. “On the other hand, banks have been offering low interest rates on savings for a long time, and this trend looks like it will be sustained in the near future. This is encouraging people to seek alternative investments.

“In fact, MSV Life is experiencing an increased demand across all its savings products. We have seen a 61 per cent increase over 2014 in investments. The MSV With Profits Fund has also exceeded €1.4bn in managed savings, making it the largest savings fund in Malta.”

Within the wider context, the Malta life insurance market registered the sixth largest growth in Europe in 2013, with a 14 per cent growth in gross written premiums. In 2014, the market registered a further growth of 24 per cent.

“The 25- to 45-year old segment is the largest in terms of life protection,” Fairbairn says. “However, we have also seen an increased interest from people aged 55-65 years who are seeking a secure and good yield on their savings.

“Our new pension plans are not intended to be short-term savings or a pot which can be accessed on a rainy day,” Fairbairn explains. “Rather, they best suit those people who want to make long-term plans for their retirement and who are willing to leave the money invested until their retirement. Those who invest in a private pension can avail of a programmed withdrawal – remaining funds will remain to the family.

“Also, private pension plans should be seen as an addition to the state pension. Currently the average state pension is of €130 per week. This gives you nothing beyond a basic standard of living.

“Research shows that while upon retiring, people see a drop in their costs by a third, they also suffer a lower income. On the other hand, why should you cut back on your lifestyle when you retire? When they retire, people should be in a financial position to maintain their lifestyle and maybe even occasionally treat themselves – after all, after working hard for years, they deserve it.

“Our private pension plans allow people to do that – maintain their current lifestyle and enjoy their retirement. Moreover, the plans are flexible, in that if your circumstances change, you can adjust the amount you save or take a break from saving.”

Another advantage of investing in a private pension is that savers can apply for a tax rebate equal to 15 per cent of the amount they save each year. The tax credit is available on contributions to registered pension plans, which gives the MSV Life personal pension plans an advantage over other products. The tax credit obliges savers to certain conditions. The savings must be left until at least age 50 and at the time one takes the benefit, the maximum that can be taken as a lump sum is 30 per cent of the accumulated value. The balance of the pot has to be used to provide an income, which could be through an annuity product, effectively guaranteeing the income payments for life.

“The tax rebate shows that government is supporting a long-term vision to sustainable pensions,” Fairbairn says. “We are also working to make these private pension plans available to foreign nationals settling down in Malta as well as to Maltese nationals working abroad.

“Many employers are also keen to offer a private pension plan to their employees – this helps them in attracting and retaining talent, which in turn benefits the whole economy.”

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